Filing for bankruptcy is a complicated process, which is why you should be aware of all of your options before you decide on what you want to do. If you are a typical consumer and not a business owner, your two main options are to file either Chapter 7 or Chapter 13 bankruptcy. Here we explain more about these different options.
What is bankruptcy?
Bankruptcy is a legal process that allows for those in debt to pay back their debt without being a victim of creditor harassment.
What is Chapter 7 bankruptcy?
Chapter 7 bankruptcy is known as the liquidation option, and it is when you turn over all non-exempt personal assets to the court as a way to pay off your debts. This is known as the more severe option for bankruptcy, and it is only chosen by those who have more debt than what they can pay back with their income.
What are non-exempt assets?
Under Chapter 7, the following assets are protected and will not be taken from you:
- Personal property such as jewelry up to $1,000, most household goods, furniture, clothing, and musical instruments.
- Retirement plans.
- The cash value of your insurance policies.
- All public benefits such as unemployment and Social Security.
- Equity of the home.
What is Chapter 13 bankruptcy?
Considered the more feasible option for those without extreme amounts of debt. Chapter 13 bankruptcy is known as the repayment plan option. By filing, you will be asked to create a repayment plan over a course of time. The amount you will be asked to repay has to do with your current income, your level of debt, and the value of the property you own. Most individuals choose to file Chapter 13 as you do not have to garnish any of your assets, as you fund your debt payment via your income.
Will I have to go to court when filing for bankruptcy?
Depending on the severity of your case, you may not have to go to court. Typically, you will have to attend a hearing with your lawyer and creditors, explaining the option you have chose and the details that go along with it. Your lawyer will be able to work as your legal advocate, meaning they will be the ones dealing with the legalities and talking to your creditors on your behalf so you won’t have to worry about speaking to them directly.
Will filing for bankruptcy stay on my credit report?
Yes, your financial history will stay on your report for 7-10 years depending on the option you chose.
Can I keep my credit cards during this process?
This decision is up to your credit card company. They will look at your financial history with them and take into consideration what chapter you have chosen to file. Then it is up to them to decide on whether or not you can stay with them as a customer.